Citation: 2009TCC361
Date: 20090710
Docket: 2008-1006(IT)I
BETWEEN:
CHRISTOPHER BRACKSTONE,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
V.A. Miller, J.
[1]
The Appellant appeals
the reassessment of his 2002, 2003 and 2004 taxation years in which the
Minister of National Revenue (the “Minister”) disallowed the deduction of
various amounts as expenses as follows:
|
Schedule “A”
|
|
2002
|
|
As filed
|
|
Allowed
|
|
In dispute
|
|
Advertising
|
|
1,000
|
|
--
|
|
1,000
|
|
Fuel
|
|
2,000
|
|
136
|
|
1,864
|
|
Interest
|
|
278
|
|
145
|
|
133
|
|
Motor vehicle
|
|
15,751
|
|
776
|
|
14,975
|
|
Legal and accounting
|
|
1,600
|
|
--
|
|
1,600
|
|
Telephone and utilities
|
|
75
|
|
--
|
|
75
|
|
Start Up costs
|
|
10,323
|
|
1,034
|
|
9,289
|
|
Balancing amount
|
|
200
|
|
--
|
|
--
|
|
Capital cost allowance
|
|
--
|
|
245
|
|
--
|
|
Expenses
|
|
31,227
|
|
2,336
|
|
28,936
|
|
|
|
|
|
|
|
|
|
2003
|
|
As filed
|
|
Allowed
|
|
In dispute
|
|
Advertising
|
|
350
|
|
--
|
|
350
|
|
Business tax, fees and dues
|
|
60
|
|
--
|
|
60
|
|
Fuel
|
|
1,909
|
|
364
|
|
1,545
|
|
Insurance
|
|
1,316
|
|
--
|
|
1,316
|
|
Interest
|
|
807
|
|
807
|
|
--
|
|
Maintenance and repairs
|
|
1,443
|
|
--
|
|
1,443
|
|
Management and administration fees
|
|
1,636
|
|
--
|
|
1,636
|
|
Motor vehicle
|
|
15,751
|
|
747
|
|
15,004
|
|
Race at Lake Elliot
|
|
325
|
|
--
|
|
325
|
|
Cell phone
|
|
1,416
|
|
231
|
|
1,185
|
|
Other expenses
|
|
3,374
|
|
365
|
|
3,009
|
|
Capital cost allowance
|
|
--
|
|
441
|
|
--
|
|
Expenses
|
|
28,387
|
|
2,955
|
|
25,873
|
|
|
|
|
|
|
|
|
|
2004
|
|
As filed
|
|
Allowed
|
|
In dispute
|
|
Business tax, fees and dues
|
|
148
|
|
88
|
|
60
|
|
Fuel
|
|
374
|
|
374
|
|
--
|
|
Delivery and freight
|
|
111
|
|
111
|
|
--
|
|
Interest
|
|
543
|
|
543
|
|
--
|
|
Supplies
|
|
13,289
|
|
--
|
|
13,289
|
|
Terminal loss
|
|
31,200
|
|
31,427
|
|
--
|
|
Expenses
|
|
45,665
|
|
32,543
|
|
13,349
|
[2]
In 2002, 2003 and 2004
the Appellant was employed on a full time basis with Ford Motor Company of
Canada Limited. During this period, he also operated “Chris Brackstone Race
Cars” as a sole proprietorship (“the Business”). The Business of the
proprietorship was to build race cars and to sell various automobile products.
The Appellant operated this business from a shop located at his family
residence.
[3]
It was the Appellant’s
evidence that he raced cars for the past 13 years. According to exhibit R-1,
the Appellant had prior experience in building a racing car as he had built one
in 1995 as a hobby. The Appellant thought that a lot of people would like to
race; but, they did not know how to build a car. In other words, the Appellant
thought there was a demand for race cars but there were very few suppliers, so
he started the Business in 2002. It was his intention that if he was
successful, he would operate the Business on a full time basis.
[4]
The Appellant stated
that his speciality was to build the chassis, motor and driveline. He engaged
others to build other parts of the race car. The car was completed in the
spring of 2003. However, on its first trip around the racetrack, there was
mechanical failure that caused the car to crash and its body and chassis were destroyed.
[5]
I note that exhibit
R-1, which included the auditor’s report, stated that the race car was
completed in the spring of 2004 and that it was destroyed by a crash in July
2004. However, at the hearing the Appellant stated that the race car was completed
in 2003 and that the crash occurred in July 2003.
[6]
In 2004, the Appellant
made the decision to shut the Business down and to claim a terminal loss.
[7]
The Appellant kept no
books for his Business. He kept some of the invoices to substantiate his
purchases but these records were kept in an envelope in no particular order
with the receipts for the goods that he sold.
[8]
At the hearing of this
appeal, the Appellant addressed some of the categories of expenses that were
disallowed as follows:
a) Advertising
He stated that he advertised to get business. He had
business cards printed; he advertised in the classified section of racing
magazines; and, he produced flyers to pass out at car shows. At the hearing, he
presented no documentation or invoices to substantiate the amounts claimed for
advertising.
b)
Fuel
The Appellant stated that he drove to Florida in March, 2002 to purchase the body
of a 1967 Corvette Coupe (the “Corvette”) which he hauled back to Ontario using his father’s pick-up truck.
He stated that it would have cost $2,000 to have the Corvette shipped to Canada whereas it only cost him
approximately $700 for the fuel for the pick-up truck. He did not claim the
costs incurred for meals.
It was also the Appellant’s evidence that, in 2002, he
drove to St. Louis to pick up parts for the chassis for his car and that he
made numerous trips to Port Huron, Michigan to pick
up parts.
He kept no logs of his trips but he did keep some of
the invoices for the fuel; however, none were tendered as exhibits at the
hearing.
c) Interest
In 2002, the Appellant obtained a small business loan
from The Toronto-Dominion Bank in the amount of $25,000. He submitted an
exhibit which showed the amount of interest that he paid for the 2003 taxation
year. This amount had been allowed in full by the auditor.
d)
Motor Vehicles
In April 2002, the Appellant purchased a pick-up truck,
a F150. He found that it was not heavy enough to haul the race car and in
September 2002, he traded it in for a F250. He was able to get a discount on
each of these vehicles as he worked at the Ford Company. By June 2003, the
Appellant found that he could not afford the F250 and he traded it for a Ford
Escape. In cross examination, the Appellant admitted that the Ford Escape was
his spouse’s vehicle.
e) Legal and Accounting
- 2002
Management and Administration Fees - 2003
The Appellant stated that he had no idea how these
amounts were calculated. I gather from his response and the state of his
records that these amounts were fictional and were not incurred.
f) Telephone and Utilities – 2002
Cell phone – 2003
The Appellant had no documentation to support the
amounts that were disallowed.
g)Start-Up Costs
The Appellant stated that the amount of $9,289 which was
disallowed included the costs of various tools and parts which he had
purchased.
h)
Maintenance and Repairs – 2003
The Appellant assumed that the amount of $1443 related
to oil changes and the replacement of tools. However, he really had no idea how
this amount was calculated or what it was for.
i)
Race at Lake Elliott – 2003
It was the Appellant’s evidence that he took part in
this race to promote his business. The amount of $325 covered the cost of the
motel, food and the entrance fee for the race. He had intended to use the Business
race car, but the week prior to the race he experienced problems with the race
car and he had to use his personal car.
j)
Other Expenses – 2003
The Appellant had no idea how the amount of $3009 was
calculated or what had been purchased that totalled this amount.
k)
Supplies – 2004
The Appellant stated that after the race car crashed, he
tried to salvage parts of it to build another car. However, it was not
financially feasible and he closed the Business.
I note that the amount of $13,289 was spent on
supplies after the Business had ceased to operate.
[9]
Kim Donald, an auditor
with the Canada Revenue Agency, testified on behalf of the Respondent. She
stated that the Appellant determined some of his expenses by adding the
invoices, but he did not maintain them in groups. Other expenses claimed by the
Appellant were estimates and no calculations were done. She stated that the
amounts disallowed for advertising, interest, legal and accounting, telephone,
insurance, and other expenses were not supported by documentation.
[10]
She explained that the
Appellant had claimed an expense for the amounts he spent on tools and parts.
For instance, she stated that the amount of $10,323 claimed as “Start-up Costs”
related, for the most part, to the purchase of car parts. She examined all of
the invoices and determined that the total purchases in 2002 were actually
$21,092. She added this amount to the closing inventory for the 2002 taxation
year. It was her evidence that the amount of $1,034 which was allowed as
Start-up costs was supported by invoices and related to customs, food, hotels,
chassis certification, advertising, tolls, and postage.
[11]
When he filed his
income tax returns for 2002 and 2003, the Appellant claimed that the F250
pick-up truck was used 100% for business. Ms. Donald stated that she tested
this claim by using the available documentation. From this documentation she
determined the number of trips to Port Huron; she
calculated the number of kilometres driven for each trip and multiplied it by
the number of trips; and, she compared the total kilometres driven on the truck
for the period of ownership as indicated on the trade in documentation.
According to her calculations, Ms. Donald estimated the business use of the
F250 to be 15%.
[12]
The evidence presented
by the Appellant at the hearing did not persuade me that his use of the F250
exceeded that allowed by the auditor. The Appellant’s oral evidence was that
this truck was used either 100% or 70% for business; he presented absolutely no
records to substantiate his use of the F250. His testimony concerning his use
of the truck was not specific enough to allow me to vary the percentage of use
assessed. If the Appellant wants to claim expenses for the use of a vehicle, he
must be diligent in accounting for those expenses.
[13]
On review of all the
evidence, I have concluded that, in 2002, the Appellant did incur an expense in
the amount of $700 for the cost of fuel on his trip to Florida.
I have also concluded that other than this amount, the Appellant has not
established that he incurred any of the other disallowed amounts.
[14]
The appeal for the 2002
taxation year is allowed. The appeals for the 2003 and 2004 taxation years are
dismissed.
Signed at Ottawa,
Canada, this 10th day of July 2009.
“V.A. Miller”
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